THE full extent of the financial troubles afflicting the Roy Castle Lung Cancer Foundation are today revealed by the Daily Post.

Reports yesterday that the sale of the foundation's purpose-built London Road headquarters had been forced on the charity by a mounting financial crisis had been vigorously denied by charity chief executive Mike Unger.

But the charity's accounts depict a bleak picture of heavy expenditure, big trading losses from its retail operation and major falls in the value of its stock market investments.

The accounts for 2001, the latest year for which figures have been filed at the Charity Commission for England and Wales, show the foundation had a &#xA3;377,000 deficit for that year.

This comes on top of losses of &#xA3;908,000 in 2000 and a &#xA3;943,000 deficit in 1999.

During the 36 months to December 2001, the cumulative deficit totalled &#xA3;2.3m.

The charity was only able to meet its commitments to fund medical research and its other charitable aims by dipping into reserves. However, the accounts show that those reserves were beginning to run out.

They show net assets of &#xA3;3.9m. Its building represented &#xA3;3.4m of that figure, leaving the charity with only &#xA3;500,000 of liquid assets to fund its continuing spending commitments, a sum that could have been used up within a matter of months at the rate of loss experienced throughout 2001.

However, the charity has now boosted its ability to meet research and other spending commitments by selling its building, for what one source said was around &#xA3;3m, to the University of Liverpool. The charity will now pay rent to use its premises.

A big drain on the charity's resources has been the 15 shops it operates in the region. The retail side made a loss of &#xA3;73,000 in 2001, a bigger loss of &#xA3;217,000 in 2000. The value of the Foundation's stock market investments fell 17pc in 2001, from &#xA3;1m to &#xA3;850,000.

In addition to these losses, the Foundation did not raise enough money to cover its spending commitments on medical research, patient care and its anti-smoking campaign. In each of the last two years, the charity spent around &#xA3;2.3m on funding these activities.

Last night, Mr Unger insisted that he had stabilised the situation since taking control last year and denied the charity was ever in any danger of having to close.

He said: "A lot of that has been the fall in the equity markets over the last couple of years and that's been a big problem for all charities.

"That's why a lot of charities, including ourselves, have taken action to make sure we are financially stable.

"I can tell you categorically that the retail division in 2003 is trading profitably, but it is a very small profit."

Mr Unger said there have been a series of measures put in place to stop the losses on the retail activities. He said: "I don't think they were managed properly before. There were too many chiefs and not enough Indians."

He said the charity was on course to hit its targets this year and added: "At the start of January each year I, in effect, guarantee to the University of Liverpool that we will pay X, say &#xA3;2m, for research.

"I then have to go off and get that money and if we don't hit that &#xA3;2m we have a problem. So far this year, we are a small amount above our target for where we should be."

Mr Unger admitted that the losses of the past few years were depleting reserves. He said: "When I turned up I was asked to do a strategic review for the next five years.

"The key aspect of my strategic review was that we must not do this. We have to live within our income and we must not dip into our reserves because the family silver goes.

"We must make sure that we fund our research and that is what's happening.

"The sale of the building does two things. One is to give a nice amount of cash in the bank on which I earn inter-est and that helps in the cash flow.

"The other thing that it does is significantly reduce my costs.

"I won't have to worry about depreciation any more. Every single penny we save can go into research."